Optimal Converge Trading with Unobservable Pricing Errors

Altay, Sühan; Colaneri, Katia; Eksi, Zehra

doi:10.2139/ssrn.3286757

Cited by 1 publication

(3 citation statements)

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“…dt , that is bounded by (3.14) (c 1 is a positive constant). Note that the first equality comes from (3.11), and in the inequality we have used (a + b) 2…”

Section: Optimal Investment Under Full Informationmentioning

confidence: 99%

“…where the functions A(•), B(•) and C(•) solve (3.17)-(3.18). 2 In the next section we will provide further conditions for the positiveness of Q(0) (see Proposition 4.2). 3 The dependence on t and z for the functions D, E, H in system (3.35) is omitted for ease of notation.…”

Section: Optimal Investment Under Full Informationmentioning

confidence: 99%

“…In Putschögl and Sass (2008) [32] an optimal investment and consumption problem under partial observation is analysed using Malliavin calculus. Investment problems in a market with two cointegrated assets under partial information are studied in some recent works as for instance Lee and Papanicolaou (2016) [26] and Altay et al (2018Altay et al ( , 2019 [1], [2].…”

Section: Introductionmentioning

confidence: 99%

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The Value of Knowing the Market Price of Risk

2019

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This paper presents an optimal allocation problem in a financial market with one risk-free and one risky asset, when the market is driven by a stochastic market price of risk. We solve the problem in continuous time, for an investor with a Constant Relative Risk Aversion (CRRA) utility, under two scenarios: when the market price of risk is observable (the full information case), and when it is not (the partial information case). The corresponding market models are complete in the partial information case and incomplete in the other case, hence the two scenarios exhibit rather different features. We study how the access to more accurate information on the market price of risk affects the optimal strategies and we determine the maximal price that the investor would be willing to pay to get such information. In particular, we examine two cases of additional information, when an exact observation of the market price of risk is available either at time 0 only (the initial information case), or during the whole investment period (the dynamic information case).

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“…dt , that is bounded by (3.14) (c 1 is a positive constant). Note that the first equality comes from (3.11), and in the inequality we have used (a + b) 2…”

Section: Optimal Investment Under Full Informationmentioning

confidence: 99%

Section: Optimal Investment Under Full Informationmentioning

confidence: 99%